Obama, Boehner Open to Compromise With Firm Stance

“The American people voted for action,” President Barack Obama said at the White House. Photographer: Andrew Harrer/Bloomberg

Nov. 10 (Bloomberg) -- President Barack Obama and House
Speaker John Boehner began public negotiations over how to avert
the so-called fiscal cliff, expressing a willingness to
compromise while reiterating their previous positions.

Obama, claiming a mandate from voters after his Nov. 6 re-election, called yesterday for an immediate tax-cut extension
for people earning less than $250,000 and insisted that top
earners pay more. Boehner cited public support for the re-elected House Republican majority and said tax rates must not go
up.

While both said they were willing to compromise and act
quickly, Obama and Boehner offered no public concessions. Their
differences may take weeks to reconcile as they test each
other’s readiness to bend, assess who will be blamed if they
fail and work with party members who won’t want to give in.

Obama and Boehner will meet at the White House Nov. 16,
along with House Democratic Leader Nancy Pelosi, Senate Majority
Leader Harry Reid and Senate Minority Leader Mitch McConnell.

“It’s going to be the real negotiating once they start
talking in person,” said Brendan Daly, a former Pelosi aide.
“Clearly, they heard the message of the voters that we need to
work together and solve this.”

Spending Cuts

If Congress doesn’t act by the end of the year, $607
billion in automatic spending cuts and tax increases are
scheduled to take effect starting in January. They stem from
previous decisions by Congress, including from the deal last
year to raise the federal debt ceiling and the 2010 extension of
tax cuts.

Concern that the global recovery will be slowed by a
political deadlock over the fiscal changes, and about Greece’s
ability to meet debt payments, contributed to declines in stocks
earlier this week. U.S. stocks rose yesterday as better-than-forecast data on consumer sentiment overshadowed concern about
the fiscal cliff.

The Standard & Poor’s 500 Index advanced 0.2 percent to
close at 1,379.85 in New York; it fell 2.4 percent this week.
The 10-year yield declined one basis point, or 0.01 percentage
point to 1.61 percent at 5 p.m. in New York, according to
Bloomberg Bond Trader prices.

In separate remarks yesterday, Obama and Boehner left open
the possibility of agreement on preserving current tax rates
while limiting tax breaks for top earners to raise revenue. Such
an approach, which neither has explicitly proposed, would let
Obama claim the higher tax payments he seeks from the wealthy
and allow Boehner to avoid the higher rates he calls
unacceptable.

‘Balanced’ Approach

Obama repeated the outline he laid out during his re-election campaign for a “balanced” approach to cutting the
deficit that would include higher taxes on the wealthiest and
some spending cuts.

The election showed “a majority of Americans agree with my
approach,” Obama said. He called for immediate action by
lawmakers to prevent rates from rising for middle-income
taxpayers. “We shouldn’t need long negotiations or drama.”

At a news conference, Boehner called for a “simpler,
cleaner, fairer tax code,” staking out the Republican position.

Boehner outlined the Republican approach to the fiscal
cliff: avoid tax rate increases and spending cuts while
beginning a process to overhaul entitlement spending and the tax
code.

“This is an opportunity for the president to lead,” said
Boehner, an Ohio Republican.

Bush Tax Cuts

The president wants to let George W. Bush-era tax cuts
lapse on income of individuals above $200,000 and of married
couples above $250,000. That would push the top tax rate to 39.6
percent from 35 percent.

The Senate, controlled by Democrats, and the House,
controlled by Republicans, have each passed one-year extensions
of their own proposals. The policies preferred by Democrats
would lead to about $58 billion in higher taxes on top earners
in 2013.

In recent days, Boehner has emphasized opposition to higher
tax rates, rather than talking about higher taxes or higher
revenue. He has endorsed the idea of increasing government
revenue through an overhaul of the tax code without saying
explicitly whether he would support a tax increase or the
elimination of tax breaks without a corresponding rate cut.

New Revenue

The idea has promise if Republicans are willing to consider
new revenue that doesn’t come from economic growth, said Michael
Linden, director of tax and budget policy at the Center for
American Progress, a Washington group aligned with Democrats.

“They’re going to be able to start with some of those
things that raise money without raising rates, and that only
gets them so far,” Linden said.

Obama’s plan to cap tax breaks, which has gotten no
traction in Congress, would raise about $584 billion over a
decade, compared with the more than $900 billion that would be
generated from higher rates on income, capital gains, dividends
and estates.

Some Democrats may insist on higher tax rates. In an
interview Nov. 8, Representative Sander Levin, the top Democrat
on the House Ways and Means Committee, said talk of limits on
tax breaks was little more than “glittering generalities” that
doesn’t reflect that the biggest breaks, including the mortgage
interest deduction, are tax policies and not loopholes.

Top Rate

“The top rate needs to go up and then you sit down and
talk about how we reform the tax code,” said Levin, of
Michigan.

Republicans have said that any additional tax revenue
should come through a restructured tax code and from so-called
dynamic scoring that relies on revenue from macroeconomic
changes generated by the tax overhaul itself.

“We’re open to higher tax revenue from economic growth,”
Representative Kevin Brady of Texas said in a Nov. 7 interview.
“And key to that obviously is fundamental tax reform that
lowers rates.”

Pressed by reporters yesterday, Boehner reiterated his
previous statements and said he wanted to preserve flexibility
for negotiations with Obama on a deal to avert the fiscal cliff
and reduce the federal budget deficit.

Limit Options

“I don’t want to limit the options that would be available
to me or limit the options that would be available to the White
House,” the speaker said. “There are a lot of ways to get
there.”

McConnell, the Senate Republican leader, drew attention to
Obama’s lack of new policy on spending.

“We have yet to hear from Democrats on spending and
entitlement reform,” he said in a statement after Obama spoke.
“Every one of us wants to help the American people by helping
the economy grow, and Republicans are eager to hear the
president’s proposals on this and many other pressing issues
going forward. The president has a duty to lead. We implore him
again to do so.”

The blueprint for a deal to avoid a fiscal nightmare early
next year may be found in the failed debt negotiations between
Obama and Boehner in mid-2011.

The contours of that plan included revenue increases,
spending cuts and changes to lower the long-term costs of
entitlement programs. Before the talks collapsed, Boehner was
willing to accept $800 billion in revenue increases and Obama
was ready to settle for $1.2 trillion.

Part of their negotiations on a $4 trillion deficit-cutting
plan included a gradual increase in the Medicare eligibility age
to 67 and an alternative yardstick for calculating inflation
that would reduce annual Social Security cost-of-living
adjustments and raise taxes by slowing the annual adjustments in
tax bracket thresholds.